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DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 6

Docket ID OCC-2013-0008

RIN 1557-AD69 FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 217

Regulation H and Q

Docket No. R-1460

RIN 7100-AD 99 FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AE01 Regulatory Capital Rules: Regulatory Capital, Enhanced Supplementary Leverage Ratio

Standards for Certain Bank Holding Companies and their Subsidiary Insured Depository

Institutions.

AGENCIES: Office of the Comptroller of the Currency, Treasury; the Board of Governors of

the Federal Reserve System; and the Federal Deposit Insurance Corporation.

ACTION: Final rule.

SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board of Governors of

the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC)

(collectively, the agencies) are adopting a final rule that strengthens the agencies supplementary

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leverage ratio standards for large, interconnected U.S. banking organizations (the final rule).

The final rule applies to any U.S. top-tier bank holding company (BHC) with more than $700

billion in total consolidated assets or more than $10 trillion in assets under custody (covered

BHC) and any insured depository institution (IDI) subsidiary of these BHCs (together, covered

organizations). In the revised regulatory capital rule adopted by the agencies in July 2013 (2013

revised capital rule), the agencies established a minimum supplementary leverage ratio of

3 percent, consistent with the minimum leverage ratio adopted by the Basel Committee on

Banking Supervision (BCBS), for banking organizations subject to the agencies advanced

approaches risk-based capital rules. The final rule establishes enhanced supplementary leverage

ratio standards for covered BHCs and their subsidiary IDIs. Under the final rule, an IDI that is a

subsidiary of a covered BHC must maintain a supplementary leverage ratio of at least 6 percent

to be well capitalized under the agencies prompt corrective action (PCA) framework. The

Board also is adopting in the final rule a supplementary leverage ratio buffer (leverage buffer)

for covered BHCs of 2 percent above the minimum supplementary leverage ratio requirement of

3 percent. The leverage buffer functions like the capital conservation buffer for the risk-based

capital ratios in the 2013 revised capital rule. A covered BHC that maintains a leverage buffer of

tier 1 capital in an amount greater than 2 percent of its total leverage exposure is not subject to

limitations on distributions and discretionary bonus payments under the final rule.

Elsewhere in todays Federal Register, the agencies are proposing changes to the 2013

revised capital rules supplementary leverage ratio, including changes to the definition of total

leverage exposure, which would apply to all advanced approaches banking organizations and

thus, if adopted, would affect banking organizations subject to this final rule.

EFFECTIVE DATE: The final rule is effective January 1, 2018.

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FOR FURTHER INFORMATION CONTACT:

OCC: Roger Tufts, Senior Economic Advisor, (202) 649-6981; Nicole Billick, Risk Expert,

(202) 649-7932, Capital Policy; or Carl Kaminski, Counsel; or Henry Barkhausen, Attorney,

Legislative and Regulatory Activities Division, (202) 649-5490, Office of the Comptroller of the

Currency, 400 7th Street S.W., Washington, DC 20219.

Board: Constance M. Horsley, Assistant Director, (202) 452-5239; Juan C. Climent, Senior

Supervisory Financial Analyst, (202) 872-7526; or Sviatlana Phelan, Senior Financial Analyst,

(202) 912-4306, Capital and Regulatory Policy, Division of Banking Supervision and

Regulation; or Benjamin McDonough, Senior Counsel, (202) 452-2036; April C. Snyder, Senior

Counsel, (202) 452-3099;or Mark C. Buresh, Attorney, (202) 452-5270, Legal Division, Board

of Governors of the Federal Reserve System, 20th and C Streets, N.W., Washington, DC 20551.

For the hearing impaired only, Telecommunication Device for the Deaf (TDD), (202) 263-4869.

FDIC: George French, Deputy Director, [email protected]; Bobby R. Bean, Associate Director,

[email protected]; Ryan Billingsley, Chief, Capital Policy Section, [email protected]; Karl

Reitz, Chief, Capital Markets Strategies Section, [email protected]; Capital Markets Branch,

Division of Risk Management Supervision, [email protected] or (202) 898-6888; or

Mark Handzlik, Counsel, [email protected]; Michael Phillips, Counsel, [email protected];

Rachel Ackmann, Senior Attorney, [email protected]; Supervision Branch, Legal Division,

Federal Deposit Insurance Corporation, 550 17th Street, N.W., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

On August 20, 2013, the agencies published in the Federal Register, for public comment,

a joint notice of proposed rulemaking (the 2013 NPR) to strengthen the agencies supplementary

mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

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leverage ratio standards for large, interconnected U.S. banking organizations.1 As noted in the

2013 NPR, the recent financial crisis showed that some financial companies had grown so large,

leveraged, and interconnected that their failure could pose a threat to overall financial stability.

The sudden collapses or near-collapses of major financial companies were among the most

destabilizing events of the crisis. As a result of the imprudent risk taking of major financial

companies and the severe consequences to the financial system and the economy associated with

the disorderly failure of these companies, the U.S. government (and many foreign governments

in their home countries) intervened on an unprecedented scale to reduce the impact of, or

prevent, the failure of these companies and the attendant consequences for the broader financial

system.

A perception persists in the markets that some companies remain too big to fail, posing

an ongoing threat to the financial system. First, the perception that certain companies are too

big to fail reduces the incentives of shareholders, creditors and counterparties of these

companies to discipline excessive risk-taking by the companies. Second, it produces competitive

distortions because those companies can often fund themselves at a lower cost than other

companies. This distortion is unfair to smaller companies, damaging to fair competition, and

may artificially encourage further consolidation and concentration in the financial system.

An important objective of the Dodd-Frank Wall Street Reform and Consumer Protection

Act of 2010 (Dodd-Frank Act) is to mitigate the threat to financial stability posed by

systemically-important financial companies.2 The agencies have sought to address this concern

through enhanced supervisory programs, including heightened supervisory expectations for

1 78 FR 51101 (August 20, 2013). 2 See, e.g., Pub. L. 111-203, 124 Stat. 1376, 1394, 1571, 1803 (2010).

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large, complex institutions and stress testing requirements. In addition, the Dodd-Frank Act

mandates the implementation of a multi-pronged approach to address this concern: a new orderly

liquidation authority for financial companies (other than banks and insurance companies); the

establishment of the Financial Stability Oversight Council, empowered with the authority to

designate nonbank financial companies for Board supervision (designated nonbank financial

companies); stronger regulation of large BHCs and designated nonbank financial companies

through enhanced prudential standards; and enhanced regulation of over-the-counter (OTC)

derivatives, other core financial markets and financial market utilities.

This final rule builds on these efforts by adopting enhanced supplementary leverage ratio

standards for the largest and most interconnected U.S. banking organizations. The agencies have

broad authority to set regulatory capital standards.3 As a general matter, the agencies authority

to set regulatory capital requirements and standards for the institutions they regulate derives from

the International Lending Supervision Act (ILSA)4 and the PCA provisions5 of the Federal

Deposit Insurance Act (FDIA). In enacting ILSA, Congress codified its intentions, providing

that it is the policy of the Congress to assure that the economic health and stability of the United

States and the other nations of the world shall not be adversely affected or threatened in the

future by imprudent lending practices or inadequate supervision.6 ILSA encourages the

agencies to work with their international counterparts to establish effective and consistent

3 The agencies have authority to establish capital requirements for depository institutions under the prompt corrective action provisions of the Federal Deposit Insurance Act (12 U.S.C. 1831o). In addition, the Federal Res